CBN moves to strengthen capital of banks, discount houses

The Central Bank of Nigeria (CBN) has moved to strengthen the capital of banks and discount houses to enhance confidence in these financial institutions.

This is following the ongoing reforms by the apex bank aimed at ensuring more prudent assessment of the regulatory capital of Nigerian banks and in line with global efforts aimed at raising the quality and loss absorbency of the capital base of banks.

Consequently, the CBN has excluded the regulatory risk reserve and collective impairment on loans and receivables and other financial assets in the computation of total qualifying capital of banks.

“The regulatory risk reserve created pursuant to Section 12.4 (a) of the Prudential Guidelines which was effective on July 1, 2010 will henceforth be excluded from regulatory capital for the purposes of capital adequacy assessment”, the CBN said in a circular released on Wednesday.

The circular signed by Tokunbo Martins, CBN’s director of banking supervision, further stated that collective impairment on loans and receivables and other financial assets will henceforth not form part of Tier 2 capital.

According to the bank, other comprehensive income (OCI) Rreserves will be recognised as part of Tier 2 capital subject to the limits set in paragraph 3.2 of the CBN Guidance Notes on the Calculation of Regulatory Capital.

“For the avoidance of doubt, total Tier 2 capital (including OCI reserves) is limited to 33.33% of total Tier 1 capital. Also, banks are required to note that unaudited OCI gains will not be recognised as part of capital while unaudited OCI losses shall be deducted from the institution’s capital in arriving at total qualifying capital”, the apex bank said.